As in many sectors, COVID-19 had a significant impact on the automotive industry in 2020. Across the globe, factories closed, production declined, supply chains were severely affected, and demand decreased. It has been a tumultuous and transformative time of change.
Beyond COVID-19 the automotive industry is experiencing tectonic shifts; consumer purchasing behaviour is changing and will only continue to evolve. Governments across the world are pressurising auto players to reduce CO2 emissions and adopt sustainable operational practices, forcing the sector to not only assess its ecological balance sheet but its social and ethical responsibilities as well.
The automotive industry has no choice but to continue to prepare itself for the future. This transformation has been further accelerated by the pandemic, but there’s more to be done when it comes to driving sustainability efforts
Alongside this, technological innovation across the automotive industry accelerates. Electric vehicle (EV) adoption is increasing, and autonomous vehicle (AV) technology is improving. As the world grapples with and rebounds from COVID-19, industry, innovation, and business must continue. With this in mind, here are four key areas that will be crucial for the automotive industry in the coming year and beyond.
Ecological, social, and ethical responsibility will become more crucial
Across the world, the relationship between the environment, innovation and the use of technology is becoming increasingly critical. In the years to come, organisations will not just seek to deal with the challenges relating to electrification and decarbonising society, but the focus will centre on the entire responsibility balance sheet, including social and ethical responsibilities. This drive towards developing a truly responsible circular economy must remain at the forefront of the entire value chain.
Within the circular economy, digitisation creates the platform to support the delivery of sustainable mobility. However, digitisation cannot do this on its own. The wider automotive industry must embrace a cultural change and consider how it can, holistically, use technology to evolve the products and processes it provides the market. As it does, so it must take employees and customers along with it.
Automakers and suppliers must reinvent themselves to become technology companies
Incumbent players must reinvent themselves using technology in order to stay competitive far down the line. Technologies such as artificial intelligence, cloud and IoT offer the potential and will be key to transforming successfully in ‘intelligent industry’, and meeting rising customer expectations.
For too long, automakers have assumed they can deliver services in much the same way as they deliver cars: doing most of the work themselves and only relying on suppliers to provide the parts. However, the tides are changing. Software is becoming an integral part of cars, and technology companies such as Google and Apple could be well-positioned to gain control of the customer interface, going after elements of the value chain. As a result, automakers risk losing the pole position when it comes to new technological know-how and connected services. Without reinvention, they risk missing out on revenue and, at worst, reversing their role and becoming the supplier.
Customer-centric and new sales models will continue to evolve
Across industries, consumers have become accustomed to customer-centric business models and convenient purchasing processes. In the automotive industry, there is an increasing demand for an upgraded, convenient online-offline sales journey that matches buying expectations and service standards in other industries. Three-quarters of consumers now want to buy their next car online. Experience is important too: around 86% of consumers are willing to share data with agents or automakers to experience a personalized, seamless journey.
New entrants like Polestar or Tesla have already successfully implemented agency or direct sales models in specific markets. This trend is especially true in the business-to-consumer (B2C) sector where traditional automakers are under pressure to provide their customers with comparable cross-industry experiences.
Even though COVID-19 poses several challenges for the automotive industry, it has also acted as a catalyst, accelerating the digitalisation of automotive sales. Compared with other industries, automakers have historically been slow to use their channels to sell cars online, generate and own consumer data, and create value along the sales process. Many automakers have now started to transform their sales models. The agency sales model is promising as it presents a way of providing superior customer experience while using existing dealer assets and creating financial benefits on all sides.
The agency sales model assures dealers that they will retain a central position within the sales process and provides consumers with a seamless omni-channel experience. Price transparency and consistency is more prominent. Intra-brand price competition between dealers (agents) can be reduced and consumers’ attraction through third-party offers can be lowered. Consumers and dealers both have much to gain from this model.
Strategic partnerships and intelligent industry are key
Automakers and suppliers must work simultaneously to form the right partnerships in order to buy or co-develop their vehicles, components, and solutions. Such partnerships can be accomplished at various levels.
It is important to think not just in terms of pure product or service integration, but also the development of new capabilities. Businesses must examine how they can transition from being solely hardware providers towards becoming software-centric companies. Namely, this requires significant changes in mindset, along with the development of software and analytics competencies and accompanying skillsets. To navigate these cultural and capability changes, it may make sense to join forces with companies that are experienced in data, cloud and the creation of AI-based insights that are the right fit to meet these changing needs.
Furthermore, companies must now focus on how to digitise key parts of their businesses and use embedded software, data, and new generation wireless connectivity to rethink what they do and how they do it. Powered by data, and the rapid development of emerging technologies like 5G, edge computing, AI and IoT, the automotive industry is transforming itself–and can truly embark on its journey towards becoming an intelligent industry.
It is important to think not just in terms of pure product or service integration, but also the development of new capabilities. Businesses must examine how they can transition from being solely hardware providers towards becoming software-centric companies
By taking such an approach, organisations will be able to unleash new forms of innovation across every aspect of their business. For instance, intelligent products and systems that can be continuously improved thanks to real-time feedback. Intelligent operations will enable supply chains, factories, plants and networks to become more efficient and cheaper to run. Through intelligent support and service systems, products will become the centre of their own ecosystems and can open the door to new business and revenue models.
The automotive industry has no choice but to continue to prepare itself for the future. This transformation has been further accelerated by the pandemic, but there’s more to be done when it comes to driving sustainability efforts forward while meeting customer expectations through new agency sales models. Some of this change can seem daunting, but with the right partnerships and alliances in place, the journey ahead can be a collaborative and fruitful one. Even if society can stave off the pandemic, the transformation of the automotive industry must continue to accelerate.
Markus Winkler is Head of Global Automotive Sector at Capgemini